Renting is profitable in more dense areas, but the never-ending sprawl of Vegas provides and endless stream of rental communities.

It's probably more accurate to say that owning is profitable in popular but supply-limited (density or legally-restricted) areas, and renting is just the typical way to extract maximum value from that ownership.

It also helps to know that the Las Vegas suburb is relatively cheap for investing - a house in Las Vegas would be as little as a third of the price of a similar house in Los Angeles, so speculators get more bang for their buck, in theory - not just in the number of assets they're holding, but in the potential profit margins for those assets; the difference between the current market value and the potential peak is much greater (as a percentage) for the Las Vegas houses than similar Los Angeles houses.

That would depend highly on whether the appreciation is in the structure or the land. In a case where the land location is the main value, there would be less opex to owning one house on an expensive lot than in owning three of the same houses on cheap lots. There's also less ownership complexity, but also less diversification and fungibility. Perhaps the biggest factor is the lower barrier to entry for new speculators.

Even if they get bailed out, how are they going to conjure up millions of new jobs?

China doesn't enjoy the same level of global confidence as the US, but they do have control of their own currency. They can create jobs by just...paying people to do stuff. They can create some yuan and give them to some people. Bam, jobs created. It seems like this concept is really hard to grasp for a lot of people.

Like I said, it doesn't need to be productive stuff. They could hire ten thousand painters to cover the whole city in murals, or ten thousand gardeners to fill it with flower gardens. And then a bunch of street-food vendors to handle all the tourists.

If you want an example of essentially-pointless job creation by the Chinese government, go watch the opening ceremonies of the 2008 Olympics. They hired 14,000 people simply to perform in that ceremony. It was purely a media spectacle, but those jobs still existed for however long it took to rehearse and perform.

Sure it works...for a while. It's basically just a form of bribery to keep people in line while the elites line their pockets before they head for the exits. For example, they did the same thing in Egypt, where the government employs millions of people that literally do nothing. The bureaucracy and resulting corruption is so inefficient that its a joke. Clearly, there is a problem when my maid is paid more than a police officer.

There should already be quite a few jobs in those 'empty cities'.We do not have anything near the level of technology to build a maintenance-free city (even if none of the services are used), so either the buildings are quickly falling into disrepair (doubt they would want a crumbling decrepit city - if nothing else the visuals would be embarrassing), or there are at least maintenance workers running around and those who supply them.

Relocate some government offices there - the office workers and their families will take up some space and hopefully serve as a seed for growth. Offer bonuses for some software development startups, move a cyberwarfare center there, or any other office which is relatively location agnostic, and you have a start.

Of course, a big part of the problem being that the apartments have actually been purchased, they were just purchased as a savings vehicle by people who live elsewhere, so there is ironically still a lack of affordable housing in those huge empty cities. Hurray for government planning!

As long as they try to keep a near fixed exchange rate for the dollar, and have leaky capital controls, by the impossibility trinity they don't have a fully sovereign currency regime.

That's very true--as long as they are doing that, their hands are tied. My original point is that they can change their minds pretty easily, compared to a country like the US. And especially compared to a country in the EU, which has very little control.

Letting their exchange rate float might have much more dire consequences for them, of course.

arcite wrote:

Sure it works...for a while. It's basically just a form of bribery to keep people in line while the elites line their pockets before they head for the exits. For example, they did the same thing in Egypt, where the government employs millions of people that literally do nothing. The bureaucracy and resulting corruption is so inefficient that its a joke. Clearly, there is a problem when my maid is paid more than a police officer.

None of those outcomes are predestined. All plans require competent implementation for them to work, obviously.

Government jobs are not "a form of bribery". I think you still don't understand the basics of what I'm saying, but this probably isn't the thread for it anyway.

pluckedkiwi wrote:

Of course, a big part of the problem being that the apartments have actually been purchased, they were just purchased as a savings vehicle by people who live elsewhere, so there is ironically still a lack of affordable housing in those huge empty cities. Hurray for government planning!

If there's no housing available then the whole idea goes out the window--the point was to fill the vacant housing, but if it's all paid for and unavailable I don't know what they can do about it. I'm not sure why government planning caused people to buy those apartments, though.

The government planned to have them built. Chinese investors with excess capital bought in early, hoping for a "land rush" so they can later sell at a higher price. It's Dutch tulips all over again.

China is finding out, as will the US in time, that homes are not ingots of gold; infinitely fungible and transferable. If those cities are to be filled, the regular workers *must* be able to afford housing. The investors hoping to clean up in Las Vegas, NV have to leave the rents affordable. Since they, by buying corporate boards, have seen fit to impoverish wage earners, those rents are going to be lower than before. Unless they plan to win the musical chairs game with other investors.

Yeah but have prices crashed in the coastal cities yet? Last I heard, they were still worth something. I'm sure in demand parts of Shanghai will always have value, just as Manhattan probably wasn't hit by the housing bust like Miami was.

Housing prices here in China are still climbing. New housing is still being produced in large volume. The government is still subsidizing their construction costs which makes it a very desirable industry to get into. Throughout my city there are literally hundreds of buildings going up at once and hundreds more sitting virtually empty. Most are already owned. The average Chinese with any extra cash laying around has nowhere else to put their money so they buy houses. In additional, many houses are said to be being bought by government officials who have gotten rich through their administrating the aforementioned subsidies. The official line is that the government is still expecting an influx of 100 million people moving from rural areas into the cities and the housing build-up is a necessary preparation for this.

I have been looking for a house to buy for several months. It is extremely frustrating to see all the empty buildings and being told again and again and again that there is nothing available. Everything is already sold--even in buildings that are months away from completion.

Housing prices here in China are still climbing. New housing is still being produced in large volume. The government is still subsidizing their construction costs which makes it a very desirable industry to get into. Throughout my city there are literally hundreds of buildings going up at once and hundreds more sitting virtually empty. Most are already owned. The average Chinese with any extra cash laying around has nowhere else to put their money so they buy houses. In additional, many houses are said to be being bought by government officials who have gotten rich through their administrating the aforementioned subsidies. The official line is that the government is still expecting an influx of 100 million people moving from rural areas into the cities and the housing build-up is a necessary preparation for this.

I have been looking for a house to buy for several months. It is extremely frustrating to see all the empty buildings and being told again and again and again that there is nothing available. Everything is already sold--even in buildings that are months away from completion.

Tulip mania was a period in the Dutch Golden Age during which contract prices for bulbs of the recently introduced tulip reached extraordinarily high levels and then suddenly collapsed.

At the peak of tulip mania, in March 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsman. It is generally considered the first recorded speculative bubble (or economic bubble) ... The term "tulip mania" is now often used metaphorically to refer to any large economic bubble (when asset prices deviate from intrinsic values).

Complicity across the financial sector & their Bush era regulators is astounding.

This was all part of "The Warning" but was disregarded as the way of making money. It had it's foundation in the essential gutting of Glass-Steagal, which was most affirmatively signed by Bill Clinton.

Complicity across the financial sector & their Bush era regulators is astounding.

This was all part of "The Warning" but was disregarded as the way of making money. It had it's foundation in the essential gutting of Glass-Steagal, which was most affirmatively signed by Bill Clinton.

Just to show, both sides do it too.

Oh, please. Clinton may have left the corral unlocked, but it was the Bush Admin & Greenspan's FRB whooping, hollering & firing off their guns that sent the horses helter-skelter.

They did everything possible to green-light the greatest top down looting spree in the history of finance.

The conservatives regularly tout probity and fiduciary responsibility as a replacement for "oppressive" government regulation. They got what they wanted and all Hell broke loose.

Personal Responsibility is an oft-used hammer to beat down those with no skin in the game and alleged takers. But it came up missing amongst the most highly compensated and well trained officers of major banks and investment houses. Just because the fence was taken down does not mean it's a good idea to jump.

Complicity across the financial sector & their Bush era regulators is astounding.

This was all part of "The Warning" but was disregarded as the way of making money. It had it's foundation in the essential gutting of Glass-Steagal, which was most affirmatively signed by Bill Clinton.

Just to show, both sides do it too.

Oh, please. Clinton may have left the corral unlocked, but it was the Bush Admin & Greenspan's FRB whooping, hollering & firing off their guns that sent the horses helter-skelter.

They did everything possible to green-light the greatest top down looting spree in the history of finance.

I say, I say, that was a joke son. Clinton left "the corral unlocked" as you say, but did he really know what we were in for? I doubt it. The economy was riding the twin bubbles of dot.com and real estate, the job market was surging, there was never any belief that any direction could be other than UP!

The ebullience was understandable. Then came confusion over the election, and later, 9/11. Our first "MBA President" helped us out by slashing revenue to the bone and piling on the debt. You would think the Board would not approve, but in this case, the "Board" was Congress, far more concerned about their re-election chances than the mere fiduciary wreckage of a nation.

By all accounts I've read, what Detroit really needs is some way to right size it's housing/population deficit. Short of some sort of drastic plan to repopulate the city, any solution that doesn't involve a whole lot of back to the earth bulldozing to reduce property/services maintenance costs on abandoned areas and the corresponding policing costs that come from empty property seems destined to fail.

Well, losing your tax base via population shifts does mean no / few new mortgages. Detroit's big problem is both a current accounts deficit and huge pension liabilities.

pluckedkiwi wrote:

Relocate some government offices there - the office workers and their families will take up some space and hopefully serve as a seed for growth. Offer bonuses for some software development startups, move a cyberwarfare center there, or any other office which is relatively location agnostic, and you have a start.

I don't think that the government would admit (that Ordos) is a failure. They're still trying hard to bring people in. The government has moved its officials into the new town, and they've also moved some of the city's best schools into the new town, to try to bring in young people. So high school kids -- they have to go to the new town for school now.

There's a huge campaign underway to occupy the city. They're basically giving people from the whole region -- and Ordos is bigger than Switzerland -- incentives to move to the city, or they're forcing them either by moving schools, hospitals, or other public facilities into the new city.

It's still massively underpopulated... as Da Xiang noted, many units were sold to investors. A huge issue the article goes into, though, is also the lack of any history of urbanization there. The money for the building boom is coming from a huge coal mining boom in the region, but it's quite a trip given the region's size for many to work in that industry but live in the city. There's several entrepreneurs in Ordos that make a living teaching people how to do things like open bank accounts.

Alamout wrote:

They can create jobs by just...paying people to do stuff. They can create some yuan and give them to some people. Bam, jobs created. It seems like this concept is really hard to grasp for a lot of people.

They've been doing that for years in infrastructure. It's not just domestic and commercial real estate, either. I can't find the picture right now, but there was a striking one posted a few years ago showing a series of bridges over a Chinese river from an aerial shot, all of them empty. Google pictures of the Guangzhou South Train Station. They've been paying people to 'do stuff' for so long now that the debt service required to pay for all that 'stuff' isn't coming anywhere near being counterbalanced by revenue from the stuff built. You can bail all that stuff out for a long time, right up until inflation starts being a serious problem, but unfortunately the 'real' inflation rate on the street for things like food, housing, energy, etc. is causing significant social unrest.

It's still going to come down to another mortgage Armageddon, even if a lot of other things blow up at the same time. Chinese RE consumers have to put a lot more down than US consumers at the height of our boom did, but in the end it doesn't matter if you've got 99% leverage or only 60% leverage if the price plummets.

To give a summary, Goldman Sachs (who else) has bought an aluminium storage company and they are now doing their best in order to keep the metal longer in storage. This then increases the rent they get for storing it and reduces supply so that prices rise. And to make the whole thing just that little more outrageous they circumvent a rule about having to deliver 3000 tons per day by moving them from one warehouse to another.

To give a summary, Goldman Sachs (who else) has bought an aluminium storage company and they are now doing their best in order to keep the metal longer in storage. This then increases the rent they get for storing it and reduces supply so that prices rise. And to make the whole thing just that little more outrageous they circumvent a rule about having to deliver 3000 tons per day by moving them from one warehouse to another.

We have discussed previously in the Box the ability of speculators to drive up the price of oil, and the discussion was around whether you could drive up the price without taking physical possession. Someone suggested that the banks actually did own a fair amount of oil in various depots. But this seems to be a little different.

As far as I can tell from the article, the Al spot price includes a storage component. Goldman Sachs are stockpiling Al in warehouses, and increasing the length of time it is stored between supplier and end-user, thus driving up the spot price. But somehow GS don't actually own the Al ingots, they just collect rent for not delivering it promptly?

Still not entirely sure how they manage this, if it is just a case of having a monopoly of the Detroit Al supply chain, if it is like the LIBOR scandal and basically just price fixing, or if they are exploiting a conflict of interest

Since they took over the warehouses the average time to fulfill an order went form 6 weeks to 16 months. Nothing fishy going on there I am sure.

I just got a chance to finish reading the rest of the article in detail. The company that regulates the futures market and says everything Goldman is doing is above board, LME, gets a cut of the rent Goldman gets for storing the metal for such extended amounts of time.

Here's a somewhat lay reading of how they make their money. There's a much more technical link to alphaville at the end. But they exploit their position to skim more out of everyone else's hands. That's basically the job of investment banks in America these days.

There are also concerns that Orr came up with a new way to evaluate unfunded pension liabilities to make them go from $600M to $3.5B, and then counted them twice in summing up the debt owed by Detroit to make it look like there is no other option than bankruptcy.

There are also concerns that Orr came up with a new way to evaluate unfunded pension liabilities to make them go from $600M to $3.5B, and then counted them twice in summing up the debt owed by Detroit to make it look like there is no other option than bankruptcy.

Why do I get the impression that Snyder & Orr are greasing the skids & pensioners' bungholes?

Oh, wait. It's because they're Republicans, because somebody has to lose, and because that's what little people are for, silly. It's a matter of principle.

There are also concerns that Orr came up with a new way to evaluate unfunded pension liabilities to make them go from $600M to $3.5B, and then counted them twice in summing up the debt owed by Detroit to make it look like there is no other option than bankruptcy.

Why do I get the impression that Snyder & Orr are greasing the skids & pensioners' bungholes?

Oh, wait. It's because they're Republicans, because somebody has to lose, and because that's what little people are for, silly. It's a matter of principle.

We'll just have to wait and see if the part of the Michigan Constitution that public workers pensions cannot be violated. Illinois has a similar provision and even larger unfunded liabilities. To see that actually enforced would probably play hell on the municipal bond market in the short term, though when that county in Alabama or whatever went through bankruptcy they didn't give pension funds a haircut.

On a personal note, I made an offer on a house today, that was last sold in the 90s. So, all the perfidity and fraud that has taken place over the last decade (at least) can eat me. My title (if I get the place) will be clean, dammit!

On a personal note, I made an offer on a house today, that was last sold in the 90s. So, all the perfidity and fraud that has taken place over the last decade (at least) can eat me. My title (if I get the place) will be clean, dammit!

On a personal note, I made an offer on a house today, that was last sold in the 90s. So, all the perfidity and fraud that has taken place over the last decade (at least) can eat me. My title (if I get the place) will be clean, dammit!

All economic data are best viewed as a peculiarly boring genre of science fiction, but Chinese data are even more fictional than most. Add a secretive government, a controlled press, and the sheer size of the country, and it’s harder to figure out what’s really happening in China than it is in any other major economy.

Yet the signs are now unmistakable: China is in big trouble. We’re not talking about some minor setback along the way, but something more fundamental. The country’s whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits. You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be.

...

Investment is now running into sharply diminishing returns and is going to drop drastically no matter what the government does; consumer spending must rise dramatically to take its place. The question is whether this can happen fast enough to avoid a nasty slump.

And the answer, increasingly, seems to be no. The need for rebalancing has been obvious for years, but China just kept putting off the necessary changes, instead boosting the economy by keeping the currency undervalued and flooding it with cheap credit. (Since someone is going to raise this issue: no, this bears very little resemblance to the Federal Reserve’s policies here.) These measures postponed the day of reckoning, but also ensured that this day would be even harder when it finally came. And now it has arrived.

Every time I read about China's currency being undervalued, I wonder what it truly being said. The value of the Renmenbi has been rising steadily for years. A few years ago the exchange rate was over 8rmb per U.S. dollar. A year ago it was about 6.28rmb per dollar. At this moment it is 6.138rmb per dollar. So is the value of the RMB rising or is it the dollar that is sinking.

With economists calling for even more parity between the two currencies are they really saying the U.S. dollar is overvalued or is the RMB still undervalued when measured against the dollar. In a recent visit to Thailand, I found that the bank exchange rate there values the RMB much lower against the dollar than in China (7.05RMB to the dollar in Thailand vs. 6.18RMB to the dollar in China at the time). So who is ultimately responsible and what are they expected to do?

The US exports inflation to the rest of the world, this hurts China just like anyone else. That China's factory output is falling is indicative of global economic malaise. ie...US consumers aren't spending enough money.

The USD is expected to strengthen over the coming year, or other currencies will weaken (depending on your point of view of course). Here in Egypt, the USD is over 15% stronger than it was 6 months ago.

The US exports inflation to the rest of the world, this hurts China just like anyone else. That China's factory output is falling is indicative of global economic malaise. ie...US consumers aren't spending enough money.

The USD is expected to strengthen over the coming year, or other currencies will weaken (depending on your point of view of course). Here in Egypt, the USD is over 15% stronger than it was 6 months ago.

My point is though, that Krugman and others continue calling for China to stop undervaluing the RMB. In recent years it has already increased in value by more than 25% against the dollar and continuing its steady climb through today. As the RMB is already worth more in China than elsewhere when comparing international exchange rates, what more can China do to further raise the RMB's value? Isn't it up to the international currency markets to set the exchange rates?

Isn't it up to the international currency markets to set the exchange rates?

Not in all cases - the RMB exchange rates are controlled by the Chinese government. What people want is for China to fully float the currency, so that exchange rates are controlled by market forces.

Watch the daily rates. How is it not floating now? It bounces around a lot and in general has been trending up for a long time. It appears to me that the complaints have little basis in reality. Perhaps there are just a lot of people looking for someone to blame?

The Chinese central bank has an announced policy of keeping the dollar / RMB trading within a range. They accomplish that through capital controls and (mainly) currency operations.

Unless the Great Firewall of China blocks out articles on central bank policies, you could have figured that out yourself instead of insinuating that other people are trafficking in anti-Chinese propaganda.

The US exports inflation to the rest of the world, this hurts China just like anyone else. That China's factory output is falling is indicative of global economic malaise. ie...US consumers aren't spending enough money.

The USD is expected to strengthen over the coming year, or other currencies will weaken (depending on your point of view of course). Here in Egypt, the USD is over 15% stronger than it was 6 months ago.

Doesn't that really underscore their problems, though? It seems that the only way that their economy can be that badly hurt by the US activity is if they're relying too heavily on the US for their industry - that they needed our business to stay afloat in the first place. So now, instead of having a little crash, they're going to have a big crash, because they leaned too heavily on a crutch that wasn't stable enough to support them.

Doesn't that really underscore their problems, though? It seems that the only way that their economy can be that badly hurt by the US activity is if they're relying too heavily on the US for their industry - that they needed our business to stay afloat in the first place. So now, instead of having a little crash, they're going to have a big crash, because they leaned too heavily on a crutch that wasn't stable enough to support them.

We've been a very stable customer with an increasing appetite for their goods.